Former Mayor Ed Koch today sent a letter to Standard & Poor’s, asking their chairman to respond to the widespread criticism his credit rating agency is coming under.
“Your downgrading of the U.S. debt has been characterized as causing the loss of $2 trillion in the collective wealth of Americans, affecting fixed income people, and endangering the retirements of millions of Americans.
“What say you to these attacks on your integrity?”
A copy of Koch’s letter is below.
Managing Director and Chairman
Sovereign Rating Committee
Standard & Poor’s
New York, New York 10041
Dear Mr. Chambers:
It is alleged by many in the media commenting on S&P’s downgrading of the United States’ rating from AAA to AA+ that S&P erred in its arithmetic. Paul Krugman in The New York Times of August 18 stated, “Before downgrading U.S. debt, S&P sent a preliminary draft of its press release to the U.S. Treasury. Officials there quickly spotted a $2 trillion error in S&P’s calculations.”
Is that an accurate statement on his part? If it was, what effect, if any, should it have had on your decision to downgrade the U.S. credit rating? Undoubtedly you are aware of columnist George Will’s statement, “You called this a shocker. Standard & Poor’s would have forfeited its good reputation if it had a good reputation to forfeit these days. It missed the entire mortgage-backed securities problem right under its nose…If you read what they actually said, it’s a kind of half-baked political analysis criticizing the American system of government and how it works now…Now, they’re entitled to their opinion on politics, but their opinion isn’t entitled to any particular respect. What did we learn from what they said that we didn’t know already? We know that from Athens in Greece to Sacramento in California, with stops in Rome, Lisbon, Madrid, Brussels, Dublin and Springfield, Illinois, an entire system of governance is under attack and actually collapsing under the weight of its contradictions. We’ve learned nothing from Standard & Poor’s.”
Also, the opinion makers on this subject point to S&P’s failure to properly rate Lehman Brothers during the period of its demise, giving it an A rating at the time. Do you accept the criticism of your decision in that instance as fair?
Another criticism often cited is that some European nations have had their AAA confirmed, e.g. England, France and Germany when many believe they are in worse shape than the U.S. because of the very weakened economic status of Spain, Italy, Portugal, Greece and Ireland, members of the European Union. Do you accept these criticisms to be valid?
Finally, a major criticism is that your conclusions and reduction in rating are politically motivated not based on economic criteria. Your downgrading of the U.S. debt has been characterized as causing the loss of $2 trillion in the collective wealth of Americans, affecting fixed income people, and endangering the retirements of millions of Americans.
What say you to these attacks on your integrity?
All the best.
Edward I. Koch